How Spain Should Negotiate Brexit: Preserving A Tangled Web – Analysis

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07c7cac5bbdbb2b7b40f2647e5eda8cd How Spain Should Negotiate Brexit: Preserving A Tangled Web – AnalysisMadrid, Espana

A recent Vox eBook examined the the potential exit facing various EU members when it or literary draw nigh to negotiating with the UK over Brexit. This border, taken from the eBook, examines Espana’s negotiating position, including the credible stumbling block of Gibraltar.

By Luis Garicano*

Brexit was a blow in Spain, its impact surpassing that of the broad election which the country itself was property three days later. Spaniards were dazed, worried about both the political and budgetary implications. Indeed, according to a Bertelsmann interpret of public opinion in large European nation (De Vries and Hoffman 2016), Spain was the community most against Brexit, with 64% of Spaniards declaring their stance against it.

Unlike in other countries, the distress does not extend to a potential contagion into Espana’s politics. Among the mainstream political celebration only one, Podemos, has flirted with Euro-skepticism (it once advocated leaving the Euro, as the Commie Party, one of its allies, still does). In gospel, Spaniards have historically been surrounded by the strongest supporters of the European integration layout (as well as among its main beneficiaries). As of 2016, 74% of Spaniards would referendum ‘Remain’ if a similar referendum were held in Espana (De Vries and Hoffman 2016). However, Espana is worried about the future, and there is generalized concern about what Brexit may rapacious for Spain and for Europe. There are several grounds for this.

First, the UK-Spain relationship is the pic perfect illustration of the economic and political gain that the EU, and the Single Market, can bring most, as I show in the next section – large run of people in both directions, as British retirees look for out Spain’s quality of life and Spanish childhood seek jobs and education in the UK; a peaceful, executable non-solution to the Gibraltar question, one of the most recalcitrant territorial disputes left in Europe; excessive flows in trade of goods and services in both conducting; and very large foreign direct investments by companionship from both countries in the other. Disentanglement this web, as a hard Brexit would ask, would be very costly to companies and artisan all over Spain (and, of course, the UK). This economical cost is a particular concern given that the homeland is just coming out of a brutal economic turning-point and levels of unemployment are over 20%.

More generally, Spain wants a strong Europe. All public parties in the Spanish parliament are in favour of invigorating the Union, including deepening the Eurozone In relation to a fiscal union, common border and safety policy, immigration policy, and so on. Spaniards disturbance that Brexit may be the beginning of the unravelling of a Continent project that has been a crucial peristyle of Spain’s return to democracy and prosperity.

Lastly, Spaniards’ worry also has a more limited angle, as the referendum has potential – albeit unreadable – implications for the regional dispute in Catalonia. A ontogeny minority of Catalans have been provoking for independence for Catalonia. The way Europe deals with a potentially free Scotland’s likely accession request in the earsh of Brexit is being closely followed in Espana, even though all parties acknowledge the momentous differences between the constitutional and legal standing of Scotland and Catalonia.

In spite of these worries, any in Spain see opportunities in Brexit. Most particularly, the Spanish government sees Gibraltar as a body of the UK on Spanish soil. There is unconcealed exhilaration in the Spanish conservative government about the large-minded support that remaining in the EU has commanded in Calpe, and many in government see a unique opportunity to figure out an issue that has enormous symbolic expenditure to many Spaniards. Spain will furthermore fight to attract the financial service business and manufacturing jobs that may abandon the UK assign Brexit.

A highly integrated market: The quartet freedoms in action

As we pointed out above, Espana is one of the clear success stories of the European combination project, and the Spain-UK relationship in particular mark a highly integrated market, with aid from trade widely spread amidst the entire population. Spanish and UK citizens chalk up taken advantage of the four freedoms that are fundamental to the Single Market: free movement of artifact, services, people and capital.

Free migration of people has resulted in huge bilateral migration pour. Migration will be the crux of the negotiations, as it was the key Chauffeur of the Brexit vote and limiting freedom of move within the EU is likely to be the one request by the UK that is virtually difficult for the EU to accept.

And yet the picture of bilateral course between Spain and the UK could not be further from that multi-colored by the ‘Brexiteer’ politicians Boris Johnson, Archangel Gove and Nigel Farage. In fact, Espana has quite an unusual position among Continent countries in that the balance of immigration is “favourable” to the UK – assorted more Brits choose to live in Espana than Spaniards in the UK.

In the age of EasyJet, the estimates reshape hugely, but Eurostat estimates that 306,000 UK-calved citizens have Spanish residence. Withal, if one also counts those who live for portion of the year in Spain, the figure reaches a stupefying figure one million full- and part-age residents, according to a study by the Institute for Usual Policy Research (Finch 2010). On the otc side, official Spanish Statistical Faculty (INE) estimates suggest that 102,498 Spaniards endure in the UK, although again the true number is probably much larger.1

The potential issues at stick that must be sorted out in negotiations for all of these humans are many. From access to health dismay, to housing and work permits, to visa-free ride travel, Brexit may change it all, and according to aggregate press reports, it appears to be a source of uneasiness and even anguish, particularly for less airborne UK pensioners in Spain.

The freedom to trade artifact and services has resulted in large bilateral course and a substantial trade surplus for Spain. The about recent data (released by ONS in March 2016) present that Spain exported goods and assistance to the UK worth a total of £24 billion in 2014 and imported £14.8 million.2 Thus Spain had a bilateral trade leftovers of £9.2 billion, well over 1% of Romance GDP (depending on the volatile exchange rate). Later Germany (which had a £25 billion surplus), this is in imperative terms the largest positive imbalance with the UK of any society in the EU, and the fourth largest worldwide after Deutschland, China and Norway.

This overall over-abundance is composed of a surplus in the trade of both artifact and services. The UK is the fourth largest market for Espana’s goods and services, accounting for 7% of the totality. In terms of goods trade, the UK is particularly earnest for the exports of transport equipment (20%), tool tools, chemicals, metals, mining, and vegetables.

The prominent services surplus is due mostly to tourism. The UK is the chief buyer of Spain’s tourism, with 15.8 zillion British tourists visiting Spain in 2015 and the UK account for 21.1% of total tourism income (Greenwood 2016).

Fashion it is hard to overstate the risk that a ‘hard Brexit’ would amaze, through trade, for Spain’s economy. No kingdom is more vulnerable than Spain to the business disruption, given the trade surplus (in GDP title), and no country has a larger interest in the softest of Brexits. Thither is a large downside for both countries from any interruption to all of these flows – and no conceivable upside – from the discussion. All that remains to ask is how bad will the damage be.

Bent of capital movement has resulted in enormous FDI pour. According to a recent report (Greenwood 2016), the UK is the leading destination for Spain’s FDI, accounting for 14% of the complete outflow. This outflow has been directed largely towards finance, telecoms and electricity. Espana has the largest investment in the UK’s financial services of all EU state, and is second worldwide after the US, through two of the maximal Spanish banks (Santander and Sabadell). Nigh one out of every five pounds of foreign assets in the UK’s banking sector is represented by these two Romance banks (17%, according to Greenwood 2016). Both botanist have huge exposure to the UK through their affiliates, with these affiliates occupation for around a quarter of their assets and profits gross in Q1 2015.

The flow in the opposite direction is also considerable. The UK is the fifth largest investor in Spain, focussing on telecoms and tobacco (Greenwood 2016).

In sum, the relationship is a sunny success for the UK-led project of a European Single Marketplace, and one that will be expensive for both dinner party to unravel. For the UK, the highest human and economic fee will be from unravelling the freedom of defecation (with significant potential losses to blimp UK contingents of residents in Spain). For Spain, the primary potential vulnerabilities are in trade and FDI flows.

For both, potentially huge vulnerabilities derive from potential business and macroeconomic turbulence as the new steady state is reached. This has the prepatent to be a really nasty transition.

Spain’s precedence

Spain´s has three priorities, which are not axiomatically compatible.

1. The politics: Preserving the Union.

As one of the well-nigh pro-European countries, Spain is committed to protective and deepening the Union. This obviously urge that Spain will support the Continent Parliament involvement and the European Commission´s rule in the negotiations, avoid obvious bilateral dialogue (quiet discussions, one imagines, must be every taking place), and push for an arrangement that waterfall neatly into existing categories – that is EEA or Suisse, or if not, Canada. Thus political considerations would cutting edge us to expect Spain to militate strongly facing intermediate “soft” solutions such as that planned by Pisani-Ferry et al. (2016).

2. The economics: Preserving the afoul web of the four freedoms.

The economics point in all told a different direction. As we have seen, the UK-Espana relationship is a very tangled web indeed, with considerable benefits to both parties, and, in trade of artifact and services, particularly to Spain. To disentangle it would take massive costs. A hard Brexit is decidedly not in the interest of either the UK or Spain. The economics (dissimilar to the politics) suggest that Spain would be doable to militate against any disruptive Brexit and gaze for middle of the road solutions. However, this practicality is unlikely to extend to all British aspirations. In special, Spain has a very recent memory of doozer outward migration flows (throughout the point of the dictatorship) that have recently been animated again with the crisis, and it will be awfully difficult for the government to accept a limitation to the unsusceptibility of movement.

3. Gibraltar: A potential make or gap issue.

Gibraltar, a small peninsula with extensive strategic value, was lost by Spanish subsequently its capture in 1704, during the War of Spanish Course, by an Anglo-Dutch fleet and was ceded to Kingdom by the Treaty of Utrecht in 1713. After aggregate wars and sieges, it has become a highly succesful enclave inside the EU with a high degree of self-polity. The status of Gibraltar, officially a colony, is on the contrary contentious, as is the status of its airport, which was collective on land that the Treaty of Utrecht set as indifferent territory.

The management of this dispute has been exceptionally facilitated in the context of the EU. The border between Espana and Gibraltar was only reopened in 1985, and by reason of then trade and people have flowed unreservedly between the two territories. Gibraltar has become the sec richest territory in the Union.

The current Romance Minister of Foreign Affairs, José García-Maragallo, has explicit clearly – and his position has been echoed by the Romance Permanent Representative to the United Nations on a advanced meeting on decolonisation – that after Brexit a new kind must be found, and that it must comprehend co-sovereignty of the UK and Spain over Gibraltar. In his language, ”they will have to choose ‘tween British outside the Union or Hispano-Brits inside the EU”.  Only co-sovereignty will tolerate Gibraltar to have the treaties apply to it.

In the solvent the Spanish government is pushing for, Gibraltar persons would preserve access to the European Unity Market, obtain both nationalities, and reserve a large degree of autonomy. Spain and the UK would be collectively in charge of defence, foreign affairs, molding control and immigration. Crucially, the Spanish standard would fly on Gibraltar.3

How much of an obstacle this belief – tiny in terms of welfare for the two countries, but with vast symbolic value – may pose in the negotiations linger to be seen, but it is sure to have a considerable tonnage in them.

What can we expect Spain’s negotiating situation to be?

From the perspective of its commercial, investment, and unsettled interests, Spain could be willing to acknowledge a soft Brexit, that is, a modified EEA with any governance mechanism for the participation of the UK in joint determination making.

However, Spain has been adopting a low side-view in the international arena for many years now, and its Europeanism advance that it is highly unlikely to deviate from the situation taken by France and Germany, and will in this manner demand that the Commission leads and the Fantan has a say in the negotiations, once Article 50 is invoked. Espana will likely be a disciplined soldier on the Continent side, and demand that access to the Unmarried Market continues to require a commitment to all foursome freedoms, and most notably to freedom of moving of people inside the Union.

A potential staggering block is Gibraltar. Everything we have heard from the Romance government up till now suggests that it is farfetched any deal in which Gibraltar retains gain in any form to the EU will be reached that does not include joint (Spanish and British) sovereignty upon the peninsula.

The Gibraltar issue highlights the apt result of the negotiation between the EU27 and the UK – the UK’s death by a m cuts. Every country involved in the bargaining has reject power, and every one of them is likely to keep a shopping list – some issue that is crucial enough to block progress. For the Poles it may be facility of movement, for the Irish it may have to do with Blue Ireland. The ability of the UK government to resist these requires, with the clock ticking, simply does not like to be there.

As a result, the UK is likely to find itself, at the end of these two dotage, with a very bad deal. By the time 27 state have finished putting together their “Yes, but what around Gibraltar?” like objections, the pro-Brexit statesman will either have to start explaining to voters the space between the fantasy they invented and the verisimilitude, or be prepared to back off from Brexit.

Rewriter’s note: This column fundamental appeared as a chapter in the VoxEU eBook What To Do With the UK? EU prospect on Brexit, available to download here.

About the framer:
* Luis Garicano
, Research Fellow with the Fruitfulness and Innovation Programme, Centre for Economic About; Professor of Economics and Strategy, Departments of Government and of Economics, London School of Economics; and Analysis Fellow, CEPR

Authors’ letter: In the interest of full disclosure: I am a Spanish voter, my kids leave in Holland, and my job is in London. Way my life will be directly affected by the parleying which are the object of this chapter, as Testament the lives of many other UK and European residents.

Tied though the author is in charge of economic, developed and innovation policy for the Ciudadanos Party in Espana, the analysis presented here is undertaken in a bodily capacity as an academic observer and LSE professor. No one of what is here written should be charmed to be the position of the party or a recommendation of what it should do; it nearly emphatically is not. I thank  Carles Casajuana, the former Ambassador of Spain to the UK, for a useful conversation and Christ Fernandez Villaverde for comments on the first gulp. All errors are my own.

References:
De Vries, C. and I. Hoffman (2016), “Keep Low-key and Carry on: What Europeans think active a possible Brexit”, EUpinions 2016/2, BertelsmannStiftung.

Finch, T. (2010), Far-reaching Brit: Making the most of the British dispersion, London: Institute for Public Policy Evaluation.

Greenwood, N. “Referéndum de Reino Unido sobre la permanencia en la UE: consecuencias parity las economias británica, de la UE, y Espanola”, Cuadernos de Información Económica, Confederación Española de Cajas de Ahorro. Dressing Junio 2016.

Pisani-Ferry, J., N. Röttgen, A. Anthropologist, P. Tucker and P. Wolff (2016), “Europe subsequently Brexit: a proposal for continental partnership,” Bruegel Extraneous Publication, Brussels.

Endnotes:
[1] On the other help, in the last (2011) census, 79,814 Romance-born residents were recorded in Great Britain and Wales.

[2] https://www.ons.gov.uk/businessindustryandtrade/internationaltrade/adhocs/005436annualimportsandexportsofuktradebycountryfrom1999to2014

[3] For a acceptable description of the positions of Spain and Gibraltar on these egress, see the article by Andrés Machado in El Mundo, “Picardo repica a Maragallo: Ni en cuatro años ni en 4000 ondeara la bandera Española en Calpe”, 6 October 2016.

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